CIMB GROUP: Improved loan delinquency with stable credit cost in 4Q23 (BUY Maintained, FV:RM6.90)

We maintain BUY on CIMB Group Holdings (CIMB) with an unchanged fair value (FV) of RM6.90/share based on P/BV of 1.0x supported by FY24F ROE of 10.2%

Net interest margin (NIM) is likely to be weaker QoQ in 4Q23, attributed to an increase in funding cost. On retail deposits, we gather that there were still campaigns ongoing in Sept and Oct 23 even though competition was not as intense as in 4Q22. Meanwhile, on non-retail or wholesale deposits, the increase in cost of funds was higher than retail deposits for both Sept and Oct 23. Management alluded to a moderation in deposit competition in 1Q24. Nevertheless, we continue to see challenges in the ability to lower cost of funds in the near term.

Thus far, there has not been any flight of deposits to the digital banks. Hence, commencement in digital banking operations of GXBank, Boost and Aeon Bank have not impacted the group’s deposit pricing strategy.

Arising from favourable movements in MGS yield, the improved FVOCI reserves in 4Q23 is likely to contribute to stronger capital ratios.

CIMB Niaga’s 4Q23 results will be announced on 21 Feb while the group’s results will be released on 29 Feb 2024. We expect the group’s 4Q23 net profit to be decent, underpinned by robust loan growth, stronger NOII and improved loan delinquency rates with a stable credit cost. This is despite a weaker NIM in the quarter from higher funding cost.

We continue to like CIMB due to its attractive valuation, trading at 0.9x FY24F P/BV with a dividend yield of 6.5%. Also, it is seen as a more liquid banking stock that will benefit from foreign fund inflows.

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Source: AmInvest Research - 31 Jan 2024